GOP: Small businesses in the US will pay more taxes than small businesses in China if the TCJA expires
Republicans on the House Ways and Means Committee, the House’s main tax-writing committee, pointed out during a hearing Tuesday that if Congress allows President-elect Trump’s first-term tax cuts to expire, millions of small businesses in the United States will see a peak a tax rate that is higher than that paid by small businesses in communist China.
Tuesday’s hearing sparked a debate the new Congress on how to deal with expiring Trump tax credits, key provisions of which are set to expire later this year. Among those key provisions is a new 20% tax deduction that Trump introduced in 2017, known as Section 199-A, which provides tax relief for qualified trade or business expenses incurred by non-corporate taxpayers.
But if Trump’s Section 199-A deduction expires later this year, small business owners could see their top tax rate more than double to 43.4%, roughly 20 percentage points higher than what businesses in communist China, said the president of Ways & Means. Jason Smith, R-Mo., expressed ua report earlier this month and reiterated during Tuesday’s hearing.
“If Congress doesn’t act … 26 million small businesses will be hit with a top tax rate of 43.4 percent, more than 20 percentage points higher than what businesses pay Communist China,” Smith said Tuesday.
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House Ways and Means Committee Chairman Jason Smith, R-Mo., speaks during a hearing Tuesday on making Trump’s tax cuts permanent. (House Ways & Means)
Smith’s concerns were echoed by others Republicans in committee during a hearing Tuesday.
“I guess my colleagues want to go back to when we had higher tax rates than Communist China,” said Rep. Jodey Arrington, R-Texas. “What’s pro-American about that? How are we going to drive economic growth, job creation and prosperity with that tax rate? We’ve reduced it to 21%, and we’re not even in the top quarter of the most competitive tax rates. So I guess my colleagues want to go back to the highest business tax rate in the free world. It doesn’t make sense.”
“The 21% rate in the United States — when you add the average state rate in the United States — is 25%,” added Rep. Kevin Hern, R-Okla. “Our biggest global opponent economically – no one is even close – is China at 25%.”
Congressman Jodey Arrington speaks to the full Ways and Means Committee on Tuesday about what to do about the expiring Trump Tax Cuts and Jobs Act of 2017. (Ways and Means Committee)
Allison Couch, founder of Ignite Accounting and one of the witnesses at Tuesday’s hearing, referred to 199-A as “the single most favorable deduction for small business owners.”
“Letting this deduction expire when it’s been in place for so many years is not going to feel like a sunset, it’s going to feel like a tax increase,” said Couch, who also filed a report in the congressional record during a hearing Tuesday by global accounting firm Ernst &. Young, which indicated 25.9 million small businesses in the United States they use the 199-A deduction.
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Other provisions Republicans and pro-TCJA witnesses at the hearing asked to make permanent included Trump’s enhanced child tax credit, which doubled the eligible parental deduction, his death tax reforms, that doubled the amount heirs could pass on before taxes, and lower marginal tax rates for individuals, a move one witness said Tuesday helped workers earn more take-home pay.
Close-up of a woman filling out an income tax return form. (iStock)
However, Democrats argued at the hearing that extending Trump’s tax cuts would benefit the ultra-rich more than anyone else. They also argued that Republicans are ignoring the impact of the deficit and not providing adequate solutions to pay for the extended cuts, noting that increased deficits could result in higher interest rates, a greater cost burden for the middle class and less economic growth.
“There’s no free lunch here,” said Brendan Duke, senior director economic policy at the left-leaning Center for American Progress. “Tax cuts are likely to eventually be paid for in the form of spending cuts or tax increases. Meanwhile, continued or even higher deficits could mean continued or even higher interest rates. This makes housing, student loans and credit card debt less affordable for workers .”
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“Republicans’ reliance on tariff taxes to offset their tax breaks for the super-rich will continue to shift the tax burden to some types of businesses that [Republicans want to protect]” warned Democratic Representative Lloyd Doggett of Texas. “The biggest loser of their plan will be our debt, but the impact it has on the solvency of Social Security, Medicare and other investments is also very critical. So as we move forward, we must consider all of these influences and seek a tax code that is fairer for working Americans and less of a giveaway to those at the top.”
Rep. Lloyd Doggett, D-Texas, stops to speak with a reporter inside the underground tunnels beneath the U.S. Capitol ((Photo by Bill Clark/CQ-Roll Call, Inc via Getty Images))
In response to the battle in Congress over expiring tax cuts, the fiscally conservative political advocacy group, Americans for Prosperity, launched a $20 million campaign to urge lawmakers on Capitol Hill “to protect prosperity” by restoring Trump’s tax cuts.
The campaign will include ads in all 50 states as the group says Congress “faces a countdown to a crisis that threatens the family budgets of nearly every American.” Notably, Americans for Prosperity endorsed Trump’s presidential candidate Nikki Haley before Trump became the GOP nominee.
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